A taxing Christmas for one and all…

…Well we hope it won’t be, but the festive period does give rise to some seasonal tax issues. With the annual Christmas party most likely already in the diary we thought it would be useful to touch on some the key areas to be aware of this December.
The Christmas Party

As many of you will be aware, entertaining your staff generally gives rise to a taxable Benefit-in-Kind on the value of the entertaining. Although the charge to tax is on the employee, it is often settled on behalf of the employee by his employer through a PAYE settlement agreement. The Taxman shows that he is no scrooge at this time of year however, providing a £150 per head exemption for ‘Annual Events ’provided to all employees, which to most businesses will mean the Christmas party. This means that you can provide entertainment for staff (and partners/spouses) up to a value of £150 per attendee without a charge to tax. Be aware that this £150 per head total is inclusive of VAT and includes all supplementary costs such as transport or accommodation provided, so make sure all costs are accounted for before assuming the exemption applies.
Christmas bonus or gifts

Every year when we open our December payslips we always hope our boss has put a little extra in, but please be mindful that HM Revenue & Customs (HMRC) do not treat Christmas bonuses any differently to any other time of the year and so they will be subject to PAYE & NIC in the normal way. However, where an employer provides all employees with a seasonal gift, HMRC may treat it is a trivial benefit and not subject the cost to tax and NIC. Their own guidance suggests a turkey, a bottle of wine or a box of chocolates would be treated as trivial but where items such as Christmas hampers are provided then employers are asked to use their judgement to ascertain whether the gift is trivial. This can be difficult to determine and may give rise to an unwanted and unexpected tax charge should HMRC view that the benefit is not a trivial one and so subject to tax and NIC.

You may also be thinking about providing your employees with immunisation against seasonal flu. This benefit should be also be treated as trivial. It only relates to seasonal jabs and not to medical treatment or any other sort of immunisations.
Gifts from Third Parties

In certain industries, it can be common practice to receive gifts from suppliers or customers around the Christmas period. In such instances, there is no liability to tax and NIC provided the gift provided is not in cash and the value of the gift is less than £250. The gift should not be provided by the employer or a person connected with the employer. Where the value of a gift (or gifts) from the same third party exceeds £250 the full amount is taxable.

The gift should not be made in recognition of, or in anticipation, of services provided by the employee. Finally there may be some impact with regard to the Bribery Act 2010, and we will be covering this in later editions of our Newsletter.

If you have any queries about any of the issues raised above or would like to know how the rules would apply specifically to your business, please contact Tom Ogden at TOgden@edge-tax.com

Real-Time Information (RTI) proposals

HMRC have recently published responses to its consultation document on the Real-Time Information proposals. This potentially significant change to the PAYE system will mean that in future, information about tax and other deductions could be collected by HMRC each time employers run their payroll.

Responses to the consultation document were broadly supportive of the proposals, which ministers are planning to implement for large employers as soon as 2012/13, with smaller employers following suit in phases by the end of October 2013.

So what will change in practice? All employers will need to change their payroll processes should the proposals be implemented. HMRC will require employers to give information on pay dates, pay frequency, employer NIC amounts each time tax, NIC and student loan deductions are paid over to HMRC.

This may sound like an increased burden on employers but by providing information at each pay run, HMRC expects the often arduous process of submitting P14/P35 end of year returns to be removed from the tax calendar. In addition, it should allow for simplification of the current procedures for new joiners or leavers.

HMRC also expects the delivery of real-time information to improve its own internal processes, with errors often blamed on delayed or out of date information provided by employers due to the current PAYE system. In turn this is likely to reduce customer contact with HMRC as more individuals will be taxed correctly in-year, freeing up resource to provide a more efficient customer service than perhaps is currently being achieved.

The feeling among many industry experts, including ourselves, is that the Real-Time Information will be introduced, it is a question of “when” rather than “if”! It is likely to significantly reduce administration for both HMRC and employers once implemented, but creating and putting in place the necessary processes may cause employers headaches, at least in the short term. If you would like to speak about RTI and how we can help your business, please contact Tom Ogden on togden@edge-tax.com

Update on Total People v HMRC

The Upper-Tier Tribunal recently released their much-anticipated decision in the case of Total People Limited (TPL) and HMRC. Contrary to the original decision by the First-Tier Tribunal, they found in favour of HMRC.

TPL places and supports apprentices throughout the North-West. A vast number of the employer’s staff are training advisers, with duties of employment requiring them to visit apprentices at their workplace. It was required that all training advisers had their own means of transport.

The policy of TPL was that for any advisers travelling more than 2,500 miles per annum, they would not be reimbursed at the Approved Mileage Allowance Payment (AMAP) rates but instead would be paid an annual cash allowance of £3,600 (which later increased to £3,700) and a lower mileage rate akin to the Advisory Fuel Rates for company vehicles.

TPL made a claim to HMRC for a refund of overpaid Class 1 NIC, arguing that the amount paid on the annual cash allowance was in fact ‘Relevant Motoring Expenditure’ and so not subject to Class 1 NIC.

The First-Tier Tribunal found in favour of the taxpayer; however HMRC were given permission to appeal to the Upper-Tier Tribunal. In August, the case was heard with the Upper-Tier Tribunal deciding in favour HMRC but we, and others in the profession, believe that this may not be the last we hear of the case.

The Upper-Tier Tribunal focused on the narrower exemption set out in the Income Tax (Earnings & Pensions) Act 2003, rather than the legislation used by both parties; Statutory Instrument 2001/1004 regulation 22A. The Income Tax legislation states that “there must be some link between payment and the miles driven”, but this restriction doesn’t apply to NIC as confirmed by the Statutory Instruments above and HMRCs own National Insurance Manual (NIM05821).

Moreover, in a subsequent page of the HMRC manual an example is given where a £200 allowance is paid to an employee for “non-fuel costs” for using his own car for business and a mileage allowance of 12 pence per mile to reimburse fuel costs. In the example both payments are explained to be “Relevant Motor Expenditure” so not liable to NIC. However, the amount in the TPL v HMRC case, £300 monthly allowance and the same 12 pence per mile rate, was not treated as RME despite being accepted by the First-Tier Tribunal.

We would expect TPL to look to seek permission to appeal this decision, as the legislation used in the decision would appear on the face of it, to be appropriate for tax relief rather than NIC. We believe the door is still open for employers in a similar position to TPL, where they provide employees with a cash allowance alongside a per mile rate to cover fuel only, to make significant reclaims of NIC. If you would like to discuss with how we can assist your business please contact Tom Ogden at TOgden@Edge-Tax.com

Reorganisations to split companies

Reorganisations of a corporate structure can have many advantages. Commonly, it is done to unlock the value of the business for shareholders, for example where a profitable area of the business is undervalued by association with a less successful part. It may also be done to focus management activity on one area of the current business, to ring fence liabilities of part of the business or prior to a potential sale of the business.

A corporate body can take on a number of different guises and we will work with you to choose the correct trading or investment vehicle, evaluating the benefits associated with each.

The taxation issues around company reorganisations can be complex, with all taxes needing to be considered:

Income Tax: Distributions from demergers of shares / assets may lead to a charge
CGT: New shares received for the transfer of assets & shares may lead to charge, if unprotected by planning arrangements.

Corporation Tax: Issues may arise around the transfer of capital allowance pools and trading losses

VAT & Stamp Duty: The implications of any transactions need to consider including the effect on indirect taxes

There are three main methods of carrying out a demerger of a business, either an exempt demerger (referred to as dividend in specie), reducing share capital or by taking advantage of the provisions in Section 110 of the Insolvency Act 1986.

Exempt demergers meet the exceptions available at Section 1088 of the Corporation Tax Act 2010. Such demergers are subject to special reliefs from Income Tax and Chargeable Gains, provided a non-trading company or potential change of ownership is not involved.

Meeting the conditions necessary for an exempt demerger may be unlikely and so more common is to use the provisions set out in the Insolvency Act 1986. Such a demerger can be used where the conditions for an exempt demerger are not met but achieving largely the same result.

Depending on the circumstances, there may be alternatives to both exempt demerges and the use of the Insolvency Act.

At Edge, we have vast experience in implementing company reorganisations and structuring for a wide range of clients. Our expertise goes beyond simple corporate structures: we often implement structures benefitting ultimate shareholders (and their families) as well as those involving offshore elements, whether trading entities or offshore holding structures such as trusts, international pensions or foundations. Where appropriate we have sought and successfully obtained HMRC clearance for such procedures. If you would like to discuss how we could assist you with reviewing the structure of your business, please contact Anton Lane….01454 777846.